Traditional Investing & Portfolio Theory

What is an emergency fund and how does it fit into investing?

An emergency fund is a reserve of easily accessible money set aside to cover unexpected costs such as a medical bill or a job loss, typically three to six months of living expenses. It sits in liquid, low-volatility holdings rather than in market investments, so its job is access, not growth. It fits into investing as the foundation that comes first: with a buffer in place, you are far less likely to sell long-term holdings at a bad moment to cover a short-term shock. It protects your investment plan from your own emergencies.